In April 2018, the European Systemic Risk Board (ESRB) published a set of recommendations to address liquidity and leverage risk in investment funds. One of the ESRB’s recommendations asked ESMA to “develop guidance on the practice to be followed by managers for the stress testing of liquidity risk for individual AIFs and UCITS”.

On 5 February 2019, ESMA published a consultation paper on draft guidelines on liquidity stress testing in UCITS and AIFs in order to fulfil the ESRB recommendation and gather input from stakeholders. The consultation closed on 1 April 2019.

The final report provides an overview of the feedback received to the earlier consultation paper and explains how ESMA took it into account when producing the final guidelines (set out in Annex III of the final report).

In general, respondents agreed with ESMA’s chosen approach of introducing minimum standards for liquidity stress testing in AIFs and UCITS funds in Europe. Many respondents also stressed the need for a long implementation period due to the need to bring in new IT systems to cope with changed stress testing methodologies. Respondents were almost unanimously of the view that money market funds (MMFs) should be excluded from the Guidelines on the basis that MMFs already fall under the Money Market Funds Regulation (MMF Regulation) which includes more stringent provisions adjusted to their specificities in terms of liquidity.

In relation to MMFs, ESMA has decided to narrow the scope of applicable provisions applying to them, focussing on those parts of the Guidelines not already covered in the MMF Regulation. Regarding exchange traded funds (ETFs), ESMA has clarified that the Guidelines apply in addition to requirements in the ESMA ETF guidelines. Leveraged closed ended alternative investment funds have been retained in the scope of the Guidelines.

The Guidelines will be translated into the official EU languages and published on ESMA’s website. The publication of the translations will trigger a two-month period during which Member State national competent authorities must notify ESMA whether they comply or intend to comply with the Guidelines. The Guidelines will apply from 30 September 2020.

The FCA reports that on 9 September 2019, it will be introducing changes to the submission of notifications by alternative investment fund managers (AIFMs) marketing alternative investment funds (AIFs) under Regulations 57, 58, 59 of the Alternative Investment Fund Managers Regulations 2013 (as amended). AIFMs marketing funds under Regulations 58, 59 and, for UK AIFMs only, Regulation 57, will return to submitting notifications via Connect. Full scope EEA AIFMs marketing AIFs under Regulation 57 will be required to submit notifications using new forms.

The FCA states that details of the changes will be published on its NPPR webpage.

]]>ESMA final guidance on liquidity stress test guidance for investment fundshttps://www.lexblog.com/2019/09/03/esma-final-guidance-on-liquidity-stress-test-guidance-for-investment-funds/
Tue, 03 Sep 2019 10:46:24 +0000https://www.lexblog.com/2019/09/03/esma-final-guidance-on-liquidity-stress-test-guidance-for-investment-funds/On 2 September 2019, the European Securities and Markets Authority (ESMA) published its final guidance regarding liquidity stress testing of investment funds – applicable to Alternative Investment Funds (AIFs) and Undertakings for the Collective Investments in Transferable Securities (UCITS). The report follows an earlier consultation in February 2019 (see previous blog post here) on draft guidelines and contains an overview of the feedback received and explains how ESMA took this into account.

The guidelines are contained in Annex III of the final report and apply to fund managers, depositaries and national competent authorities (NCAs). The purpose of the guidelines is to increase the standard, consistency, and frequency of liquidity stress testing already undertaken and to promote convergent supervision of liquidity stress testing by NCAs. The guidelines should be adapted to the nature, scale and complexity of a fund.

ESMA claims that the new guidelines will strengthen liquidity tests for investment funds, as fund managers will need to apply a comprehensive set of guidelines when designing the scenarios, policies and frequency of liquidity stress tests for the funds they manage. Additionally, ESMA recommends that managers notify NCAs of material risks and actions taken to address them. Depositaries are now required to verify whether a fund manager has in place documented procedures for its liquidity stress testing program.

In terms of next steps, the guidelines will be translated into the official EU languages, the publication of which will trigger a two-month period where NCAs must notify ESMA whether they comply or intend to comply with the guidelines. The guidelines will apply from 30 September 2020.

Our latest series of briefings cover some of the key regulatory developments facing financial services firms:

4 September 2019: The clock is ticking on SMCR compliance. In this practical workshop conducted under Chatham House rules the Norton Rose Fulbright SMCR implementation team look at some of the last minute thorny issues that FCA solo regulated firms are dealing with as they approach the December deadline for SMCR compliance. Further information and registration can be found here;

2 October 2019: Brexit – the final countdown? In this webinar we discuss what we are seeing in the market as firms make their preparations for a no deal Brexit. We also look at how the PRA and FCA are using the temporary transitional relief powers and ask the question of what legal and compliance teams should be doing the morning after a no deal Brexit. Further information and registration can be found here; and

6 November 2019: Prudential regime for investment firms. In this webinar we will discuss the proposed new EU approach to the prudential classification of investment firms and the new capital requirements methodology. We will cover the new reporting requirements and remuneration provisions. Further information and registration can be found here.

]]>FCA letter on UK specific UCITS liquidity standardshttps://www.lexblog.com/2019/08/08/fca-letter-on-uk-specific-ucits-liquidity-standards/
Thu, 08 Aug 2019 15:13:13 +0000https://www.lexblog.com/2019/08/08/fca-letter-on-uk-specific-ucits-liquidity-standards/On 7 August 2019, the FCA published a letter (dated 6 August 2019) from Andrew Bailey, FCA Chief Executive, in response to Lord Myners’ written question asking if the Government has ever formally reviewed the case for the UK establishing its own requirements for liquidity standards for UCITS at higher levels than specified in EU Directives or whether the UK is bound by EU rules and cannot introduce higher standards.

Mr Bailey explains that the UCITS Directive is generally minimum harmonising and therefore it would be possible to tighten the liquidity standards for UCITS schemes established in the UK. However, Mr Bailey also points to two significant drawbacks to this course of action:

the FCA is not permitted by EU law to unilaterally extend measures to UCITS established in the EEA (as opposed to the UK) and marketed in the UK under EU passporting rights so tightening the liquidity standards for UK funds would not be sufficient in protecting UK investors from harm; and

the UCITS Directive sets an overall objective that funds should be liquid, but the legislation contains detailed rules that may be, in some areas, not sufficient to ensure liquidity. Mr Bailey uses the example of the suspension of the LF Woodford Equity Income Fund to demonstrate that exchange listing and liquidity are not synonymous and that listing does not mean trading will occur. He adds that there is a potential conflict between the detailed rules and overall requirement for liquidity which may need clarifying.

Mr Bailey states that in his view there is merit in considering the new SEC approach in the US which creates a purposive test of liquid status and supports this with requirements around governance, systems and controls etc. The purposive test is to require fund managers to allocate assets to liquidity buckets based on the estimated time it would take to sell the asset.

Finally, Mr Bailey points out that the FCA will be working with the Bank of England to consider how redemption terms for funds established in the UK might be better aligned with the liquidity of their assets and the effectiveness of existing measures aimed at dealing with the misalignment of redemption terms and asset liquidity.

]]>FCA publishes SM&CR banking reviewhttps://www.lexblog.com/2019/08/06/fca-publishes-smcr-banking-review/
Tue, 06 Aug 2019 15:15:56 +0000https://www.lexblog.com/2019/08/06/fca-publishes-smcr-banking-review/On 5 August 2019, the FCA published a new webpage containing the findings of its review into the embedding of the Senior Managers and Certification Regime (SM&CR) in the banking sector.

Generally, the FCA found that the banking industry had made a concerted effort to implement the SM&CR finding that most firms have taken actions to move away from basic rules-based compliance towards embedding the regime in the organisation.

Points of interest include the following:

senior manager accountability. The FCA states that the SM&CR does not seek to redefine the roles of non-executives. In particular, it does not expect non-executives to act more like executive directors. Indeed, the FCA sees the oversight role of non-executive directors and their ability to challenge management as a key safeguard for the interests of firms’ stakeholders;

The FCA states that it found that firms have implemented processes to oversee the certification population. They have taken steps to ensure their frameworks are robust with several checks and balances in place to support the competence assessment and provision of training. However, the regulator also found that most firms could not demonstrate the effectiveness of their assessment approach, use of subjective judgement or how they ensure consistency across the population;

regulatory references. Overall the FCA found that firms were positive about the concept of regulatory references in order to prevent individuals with poor conduct records transferring to new employers. However, the industry as a whole needs to be more consistent with the quality, timeliness and reliance on these references;

conduct rules. Firms have told the FCA that the SM&CR is having an impact on the mindset of senior managers. However, the SM&CR is primarily enabling firms to improve their controls environment, which they expect to lead to improved behaviours. It is not clear to what extent the regime has been linked to culture; and

The FCA notes that some firms seem to have been less successful in embedding the regime below the senior manager level. There is some room for further progress at the certification level and potentially more significant weaknesses in the implementation of the conduct rules for other staff.

The findings of the review will be of interest to the banking sector and to all SM&CR firms, including solo-regulated firms that will be coming into the regime in December 2019 and insurers, for which the regime commenced in December 2018.

The FCA notes that this is not a full post-implementation review and it does not propose to make any policy changes based on it. However, the findings will be used to help focus on communications and supervision.

We have created an SM&CR toolkit which gives firms access to a range of key documents that are needed in order to implement the SM&CR in their business. It includes:

a project plan, which maps progress against deadlines;

a template management responsibilities map;

tools to map senior managers to their new functions;

tools to identify certified staff and map/identify the prescribed responsibilities and overall responsibilities across the business to their senior manager function holders;

]]>FCA publishes final guidance on cryptoassets regulationhttps://www.lexblog.com/2019/08/01/fca-publishes-final-guidance-on-cryptoassets-regulation/
Thu, 01 Aug 2019 15:49:23 +0000https://www.lexblog.com/2019/08/01/fca-publishes-final-guidance-on-cryptoassets-regulation/On 31 July 2019, the FCA published Policy Statement 19/22: Guidance on cryptoassets – feedback and final guidance to CP19/3 (PS19/22). In PS19/22 the FCA responds to the feedback it received to Consultation Paper 19/3: Guidance on cryptoassets (CP19/3) (our blog is here) and sets out the final guidance.

The purpose of CP19/3 was to provide clarity on the FCA’s regulatory perimeter for market participants carrying on activities in the cryptoasset market. The FCA consulted on draft guidance based on the different categories of cryptoassets initially defined in the UK Cryptoasset Taskforce Report and set out whether they fell within the regulatory perimeter.

In PS19/22 the FCA reports that the majority of respondents to CP19/3 were receptive to its proposals. The FCA has therefore decided to proceed on the basis on which it consulted. The final guidance remains largely the same as the version consulted on. However, the FCA has made amendments in a few areas, for example it has amended the wording in the guidance to provide further clarity on tokens commonly referred to as stablecoins. The FCA has also made minor drafting changes throughout the guidance, particularly to provide more clarity where tokens might be e-money.

In terms of next steps, the FCA expects market participants to take the final guidance into consideration and will use it as a basis on which the regulator can proactively engage with any cryptoassets firms to check whether they are carrying on regulated activities.

The FCA states that the final guidance will inform further work being carried in this area, including:

HM Treasury’s consultation on whether further regulation is required in the cryptoassets market, particularly in relation to unregulated cryptoassets;

HM Treasury and FCA work on transposing the Fifth Anti-Money Laundering Directive (5AMLD).

]]>AFME updates model equity selling restrictionshttps://www.lexblog.com/2019/07/29/afme-updates-model-equity-selling-restrictions/
Mon, 29 Jul 2019 11:01:03 +0000https://www.lexblog.com/2019/07/29/afme-updates-model-equity-selling-restrictions/On 26 July 2019, the Association for Financial Markets in Europe (AFME) published a revised version of its model equity selling restrictions to reflect the application in full of the Prospectus Regulation that came into force on 21 July 2019.

The updated version of the equity selling restrictions replaces references to the Prospective Directive with the new Prospectus Regulation and reflects that the Regulation is directly applicable in all EEA Member States and that no implementing measures are required at a national level. The AFME has also included separate versions of the equity selling restriction for insertion into transaction contractions such as underwriting agreements and prospectuses respectively, and a selling restriction addressing additional UK securities laws for insertion into transaction contracts.

]]>A conversation on the Green Finance Strategyhttps://www.lexblog.com/2019/07/29/a-conversation-on-the-green-finance-strategy/
Mon, 29 Jul 2019 08:59:33 +0000https://www.lexblog.com/2019/07/29/a-conversation-on-the-green-finance-strategy/On July 2, 2019, the Government published its policy paper on the Green Finance Strategy – a strategy that “recognises the role of the financial sector in delivering global and domestic climate and environmental objectives.” Imogen Garner, partner in the Financial Services team, Glenn Hall, partner and head of the Government Relations and Public Policy team, and Rosa Mottershead, counsel in the Energy, Infrastructure and Natural Resources team, at Norton Rose Fulbright discuss, amongst other things, the opportunities created by the strategy, the implications for the financial services/banking and finance sectors, and mandatory requirements that businesses must consider.

In January 2019, the FCA consulted on changes to optimise the Senior Managers and Certification Regime (SM&CR). In PS19/20 the FCA summarises the feedback it received to the consultation, its response to the feedback and sets out final rules.

In general, the FCA has implemented the proposed changes to the SM&CR as consulted on, which include:

confirming that the Head of Legal function is excluded from the requirement to be approved as a Senior Manager;

amending the intermediary revenue criterion for the Enhanced regime;

clarifying the requirements and scope of the Certification Regime; and

The FCA considers that including the Head of Legal in the Certification Regime and applying conduct rules delivers most of the benefits of including these individuals within the SM&CR, without compromising the law of legal privilege. The procedure for the application of the Certification Regime to the Head of Legal is the same as it is for other Certified Staff. Firms will have a year to complete certification and need to ensure that they are assessing these individuals on an annual basis. Banking firms will have until the commencement date of 9 December 2019. A firm will not be required to undertake regulatory referencing or redo fit and proper assessments for these individuals as long as their job does not change.

In terms of amendments to the Certification Regime the FCA has amended the scope of the Client Dealing Function as consulted on. A definition of the Client Dealing Function can be found in SYSC 27.8.19 of the Senior Management Arrangements, Systems and Controls sourcebook (SYSC). The amended rule has been drafted in a way that provides firms with the flexibility to exercise judgment on whether a role requires certification. The relevant factors that firms would be required to consider in assessing individuals include whether the role: (i) is simple or largely automated; and (ii) involves exercising discretion or judgment. Whilst the FCA gave some examples in its consultation, it states that it is not possible for it to give an exhaustive list of all the ways an individual could be considered to be undertaking client dealing activities within the published definition.

The FCA is also implementing its proposal to introduce a Certification Function to cover individuals in systems and controls functions at firms where these functions do not require approval.

An online client briefing note on PS19/20 will be published shortly.

]]>NGFS technical supplement to report on climate change as a source of financial riskhttps://www.lexblog.com/2019/07/26/ngfs-technical-supplement-to-report-on-climate-change-as-a-source-of-financial-risk/
Fri, 26 Jul 2019 15:18:12 +0000https://www.lexblog.com/2019/07/26/ngfs-technical-supplement-to-report-on-climate-change-as-a-source-of-financial-risk/On 23 July 2019, the Network for Greening the Financial System (NGFS) published a technical supplement to its first comprehensive report on climate change as a source of financial risk which is aimed at central banks and financial supervisors. The paper provides an analysis of two types of risks that arise from climate change: physical and transitional, both of which could manifest as risks to the financial system if there is a disorderly transition to a low-greenhouse economy. In its key findings, the NGFS concludes that central banks and supervisors need to categorise these risks more clearly to assess their impact on macroeconomic variables that are central in the monetary frameworks; and potential to generate financial instability.
]]>SM&CR extension – Commencement Regulationshttps://www.lexblog.com/2019/07/19/smcr-extension-commencement-regulations/
Fri, 19 Jul 2019 14:36:16 +0000https://www.lexblog.com/2019/07/19/smcr-extension-commencement-regulations/There was published on the legislation.gov.uk website, the Bank of England and Financial Services Act 2016 (Commencement No.6 and Transitional Provisions) Regulations 2019.

The Senior Managers and Certification Regime (SM&CR) comes into force for solo regulated firms from 9 December 2019. However, these Regulations provide for two exceptions to the commencement date, for newer categories of solo regulated firms:

benchmark administrators. These firms have until the end of 2019 to become FCA authorised and as such the SM&CR will commence on 7 December 2020 to allow the FCA to carry out a dedicated consultation for benchmark administrators before making final rules for the sector; and

claims management companies (CMCs). Not all CMCs will have gained full FCA authorisation by 9 December this year, so the Regulations confirm that the SM&CR begins for these firms on 9 December this year, or at the date at which they receive full FCA authorisation if this is later.

The Regulations will enter into force on 18 July 2019

]]>EBA report on approaches relating to FinTech activitieshttps://www.lexblog.com/2019/07/19/eba-report-on-approaches-relating-to-fintech-activities/
Fri, 19 Jul 2019 14:23:43 +0000https://www.lexblog.com/2019/07/19/eba-report-on-approaches-relating-to-fintech-activities/On 18 July 2019, the European Banking Authority (EBA) published a report illustrating the findings of an analysis on issues relating to access to the market for FinTech firms. The analysis focused on the monitoring of national developments on the regulatory perimeter; the national regulatory status of FinTech firms; and the approaches followed by Member State national competent authorities (NCAs) when granting authorisation under CRD IV, PSD2 and EMD2.

The results of the monitoring exercise conducted in relation to the regulatory perimeter for activities and services relating to FinTech innovative business models or delivery mechanisms show a steady scenario with very little national legislative activity affecting the regulatory perimeter of the NCAs.

The analysis of the national regulatory status of FinTech firms with innovative business models or delivery mechanisms shows two developments:

the move of certain activities – notably payment initiation services and account information services – from not being subject to any regulatory regime to being subject to PSD2 after its transposition into national law; and

with the exception of crowdfunding and to some extent activities related to crypto-assets, the ancillary/non-financial nature of the services and activities provided by FinTech firms not subject to any regulatory regime.

In the light of the above findings on the regulatory perimeter and regulatory status, the EBA’s view at this stage is to continue observing the activities in the market as part of its mandate to monitor innovation and the regulatory perimeter, the EBA also considers that it is not necessary to put forward any specific recommendation.

]]>ESMA call for evidence on impact of the inducement and costs and charges disclosure requirements under MiFID IIhttps://www.lexblog.com/2019/07/18/esma-call-for-evidence-on-impact-of-the-inducement-and-costs-and-charges-disclosure-requirements-under-mifid-ii/
Thu, 18 Jul 2019 15:46:13 +0000https://www.lexblog.com/2019/07/18/esma-call-for-evidence-on-impact-of-the-inducement-and-costs-and-charges-disclosure-requirements-under-mifid-ii/On 17 July 2019, the European Securities and Markets Authority (ESMA) issued a call for evidence on certain investor protection topics included in the European Commission mandate to ESMA on the reports to be submitted by the Commission under Article 90 of MiFID II.

Article 90 of MiFID II provides that the Commission shall, after consulting ESMA, present a report to the European Parliament and the Council on, inter alia, the impact of the inducements disclosure requirements under MiFID II. In line with the Commission mandate to ESMA, the call for evidence also concerns the impact of the costs and charges disclosure requirements under MiFID II, including collecting information on whether and how the application of the above rules varies across Member States.

Respondents are invited to submit responses to the list of questions by 6 September 2019.

]]>ESMA consults on draft guidelines on performance fees in UCITShttps://www.lexblog.com/2019/07/18/esma-consults-on-draft-guidelines-on-performance-fees-in-ucits/
Thu, 18 Jul 2019 15:29:01 +0000https://www.lexblog.com/2019/07/18/esma-consults-on-draft-guidelines-on-performance-fees-in-ucits/On 16 July 2019, the European Securities and Markets Authority (ESMA) issued a public consultation on draft guidelines on performance fees under the Undertakings for Collective Investment in Transferable Securities (UCITS) Directive.

The draft guidelines aim to improve harmonisation in the way in which performance fees can be charged to UCITS. This follows a mapping exercise ESMA carried out in 2018 which analysed the current national practices for key aspects of performance fees. The results of which indicated a lack of harmonisation among EU jurisdictions. Steven Maijoor (Chair of ESMA) notes that the varying practices exhibited between EU Member States creates “undue risks of regulatory arbitrage and inconsistent levels of investor protection”.

ESMA’s draft guidelines propose common criteria to promote supervisory convergence in the following areas:

general principles on performance fee calculation methods;

consistency between the performance fee model and the fund’s investment objectives, strategy and policy;

frequency for the performance fee crystallisation and payment;

the circumstances where a performance fee should be payable; and

disclosure of the performance fee model.

Annex II of the consultation provides an overview of the applicable UCITS legislation related to performance fees and Annex III includes excerpts from the IOSCO Good Practice for Fees and Expenses of Collective Investment Schemes which ESMA considered while developing the consultation.

Responses to the consultation should be submitted by 31 October 2019. ESMA will consider the feedback received in Q4 2019 and expects to finalise the guidelines afterwards.

Federal Reserve Board issues proposal to clarify and simplify “control” under the Bank Holding Company Act

]]>Cross border distribution of investment funds – legislation published in the OJhttps://www.lexblog.com/2019/07/15/cross-border-distribution-of-investment-funds-legislation-published-in-the-oj/
Mon, 15 Jul 2019 11:37:28 +0000https://www.lexblog.com/2019/07/15/cross-border-distribution-of-investment-funds-legislation-published-in-the-oj/On 12 July 2019, the following legislative acts were published in the Official Journal of the EU (OJ):

Directive (EU) 2019/1160 amending the UCITS Directive and the Alternative Investment Fund Managers Directive with regard to the cross-border distribution of collective investment undertakings; and

Regulation (EU) 2019/1156 on facilitating cross-border distribution of collective investment undertakings and amending the European Venture Capital Funds Regulation, the European Social Entrepreneurship Funds Regulation, and the Regulation on key information documents for packaged retail and insurance-based investment products.

The Regulation and Directive aim to:

eliminate regulatory barriers to the cross-border distribution of funds;

improve transparency by aligning national marketing requirements and regulatory fees;

introduce consistency in the way regulatory fees are determined;

harmonise the process and requirements for the verification of marketing material by Member State national competent authorities;

allow managers to “test the appetite” of potential investors for new investment strategies; and

enable ESMA to better monitor investment funds.

The Directive and Regulation will enter into force on 1 August 2019. The Regulation will apply from 1 August 2019, with the exception of Articles 4(1) to (5), Articles 5(1) and (2), Article 15 and Article 16, which will apply from 2 August 2021. Member States are required to apply measures implementing the Directive from 2 August 2021.

]]>ESMA warns CFDs providers on application of product intervention measureshttps://www.lexblog.com/2019/07/15/esma-warns-cfds-providers-on-application-of-product-intervention-measures/
Mon, 15 Jul 2019 11:34:53 +0000https://www.lexblog.com/2019/07/15/esma-warns-cfds-providers-on-application-of-product-intervention-measures/On 12 July 2019, the European Securities and Markets Authority (ESMA) issued a statement addressed to providers marketing, distributing or selling contracts for differences (CFDs) to retail clients. The statement is in response to various practices and situations observed in the market, which raise concerns of non-compliance with the legal requirements applicable when providing services to retail clients. ESMA has identified undesirable practices related to: (i) professional clients on request; and (ii) marketing, distribution or sale by third-country CFD providers.
]]>ESMA Q&As on MiFID II and MiFIR investor protection and intermediarieshttps://www.lexblog.com/2019/07/12/esma-qas-on-mifid-ii-and-mifir-investor-protection-and-intermediaries/
Fri, 12 Jul 2019 11:07:06 +0000https://www.lexblog.com/2019/07/12/esma-qas-on-mifid-ii-and-mifir-investor-protection-and-intermediaries/On 11 July 2019, the European Securities and Markets Authority updated its Q&As on the implementation of investor protection topics under MIFID II and MiFIR. The new Q&As provide clarification on the following: Best execution – Classification of financial instruments under RTS 27 if ESMA has not published any calibrated market sizes.
]]>Update of annual equity transparency calculations – application of the tick size regime for third-country shareshttps://www.lexblog.com/2019/07/09/update-of-annual-equity-transparency-calculations-application-of-the-tick-size-regime-for-third-country-shares/
Tue, 09 Jul 2019 14:42:10 +0000https://www.lexblog.com/2019/07/09/update-of-annual-equity-transparency-calculations-application-of-the-tick-size-regime-for-third-country-shares/On 7 July 2019, the European Securities and Markets Authority (ESMA) published a statement regarding the updated results of the annual equity transparency calculations published on 21 June 2019.

ESMA states that it is currently investigating an issue with the updated calculations which appears to affect the results for shares whose main pool of liquidity is in a third country while having less than one transaction a day on average on the most relevant market in the EU.

ESMA will revert in due course with a revised set of results for the relevant shares.

In the meantime, ESMA wishes to clarify that European trading venues are until further notice not bound by the tick sizes deriving from the ESMA publication of 21 June 2019 for third-country shares with an average daily number of transactions lower than one on the most relevant market in the EU. All those shares should be considered third country shares for which the trading venue with the highest turnover is located in a country outside the EEA.

The updated results apply from 8 July 2019.

]]>FCA statement on the Joint Declaration on climate changehttps://www.lexblog.com/2019/07/03/fca-statement-on-the-joint-declaration-on-climate-change/
Wed, 03 Jul 2019 16:36:07 +0000https://www.lexblog.com/2019/07/03/fca-statement-on-the-joint-declaration-on-climate-change/On 2 July 2019, the FCA published a Joint Declaration with the PRA, the Pensions Regulator and Financial Reporting Council, welcoming the publication of the Government’s Green Finance Strategy and setting out a shared understanding of the financial risks and opportunities of climate change.

The FCA welcomes the Chancellor’s announcement that the FCA will have to have regard to the COP21 Paris Agreement when advancing its objectives and discharging its duties, and that this will be reflected in the next letter of recommendation that HM Treasury issues to the FCA. This aligns with the FCA’s understanding that addressing the risks of climate change and enabling the transition to a low carbon economy serves the public interest and forms part of its strategic objective to ensure that Financial Services markets function well.

The FCA also sets out its recent work on climate change. In the coming months it will provide an update on its work on climate change, providing feedback on responses to its earlier Discussion Paper on Climate Change and Green Finance and setting out next steps.

In CP19/22 the FCA are proposing to ban the sale, marketing and distribution to retail clients of derivatives and exchange traded notes (ETNs) referencing unregulated transferable cryptoassets. These measures will be applied under Article 42 of MiFIR. Where the measures go beyond the MiFIR power, the FCA proposes to use its rule making power under the Financial Services and Markets Act 2000. The FCA is proposing this ban on the basis that it considers that retail consumers cannot reliably assess the value and risks of derivatives and exchange traded products that reference certain cryptoassets.

Paragraphs 3.42 to 3.52 of CP19/22 sets out further what the FCA’s proposals will not cover. This includes tokens that are unregulated but not widely transferable, derivatives that reference e-money tokens and derivatives that reference security tokens. In terms of tokens that are unregulated but not widely transferable, the FCA states that this would include, for example, tokens used on a private network where they can be only redeemed with the issuer and cannot be exchanged between third parties via platforms.

The FCA also confirms that its proposals will not extend to professional clients or eligible counterparties. This is partly because the level of participation by institutional investors or wholesale firms in cryptoassets and crypto-derivatives is very limited. These clients may, in general, have greater understanding of the risks, and greater capacity to absorb potential investment losses. Firms providing these products must, however, carefully consider and assess whether the clients meet the relevant criteria to be treated as professional clients or eligible counterparties.

The FCA does not expect significant one-off implementation costs due to its ban. It also does not expect firms to incur any ongoing costs, although its proposal to ban crypto-derivatives will lead to a loss of revenue from fees and charges of around £75m per annum across all products, based on revenues from June 2017 to December 2018. More specifically, the FCA estimates firms will forgo revenues of £68.5m per annum in relation to CFDs, £2.3m for futures, and £5.7m for ETNs. Loss of revenues to firms will, however, form part of the benefits to retail consumers, as any profits foregone from charges would be losses avoided by retail consumers.

The deadline for comments on CP19/22 is 3 October 2019. The FCA intends to publish a Policy Statement and final Handbook rules in early 2020.

The Regulations amend the Financial Services and Markets Act 2000 to give effect to the requirements of the EU Prospectus Regulation. The Financial Services Act 2012, the Data Protection Act 2018 and relevant secondary legislation are consequentially amended.

Whilst the EU Prospectus Regulation will apply in its entirety in the UK on 21 July 2019, the Regulation does permit Member States to impose additional requirements beyond those set out in the Regulation in relation to a Prospectus Summary and administrative sanctions.

Each prospectus must contain a summary document, containing the key information (as specified within the EU Prospectus Regulation) for potential investors. If a firm is issuing an investment or insurance-based investment product to retail investors, they must also comply with the PRIIPs Regulation. This introduces a standardised disclosure document (Key Information Document or KID). The EU Prospectus Regulation allows issuers who are subject to the PRIIPs regulation to substitute information required for a Prospectus Summary with certain elements of their KID. Member States are also given the option to require all issuers to which the PRIIPs Regulation applies, to make this substitution. HM Treasury decided not to extend this obligation to all issuers, but rather to maintain the flexibility for issuers to decide to substitute information required for a Prospectus Summary with certain elements of their KID, as provided for by the EU Prospectus Regulation.

The Proxy Advisor (Shareholders’ Rights) Regulations 2019 implement that part of the revised Shareholders Rights Directive (SRD II) which relates to proxy advisers. Under the Regulations, proxy advisers must:

disclose whether and how they apply a code of conduct;

disclose information on their research capabilities and how they produce their advice and voting recommendations;

identify and disclose any actual or potential conflicts of interests or business relationships that may influence the preparation of their research.

The FCA is designated as the competent authority over proxy advisers.

The FCA proposes decision making procedures to:

remove an advisor from the public list of proxy advisers if they stop providing services but have not given the FCA notice to be removed from the list; and

investigate and discipline proxy advisors that must meet the Regulations but are not authorised by the FCA or PRA under the Financial Services and Markets Act 2000 (FSMA).

In CP19/21 the FCA proposes amendments to Annexes 1 and 2 of chapter 2 of the Decision Procedure and Penalties manual (DEPP) to set out the decision-making procedure for:

removing a proxy advisor from the public list of proxy advisors. The FCA will use executive procedures to take the decision to remove a proxy advisor from this list;

determining when to publish a statement about a proxy adviser contravening a relevant requirement. The FCA will take the decision to impose a public censure under the Regulatory Decisions Committee (RDC) procedure in contested cases. In settled cases, the settlement decision makers will take the decision;

determining when to impose a financial penalty on a proxy advisor. In contested cases, the FCA will take the decision to impose a financial penalty under the RDC procedure; and

determining when to impose a restitution requirement. The FCA will use the RDC procedure when taking the decision to require a person to pay restitution.

The FCA also proposes to add a new section to Chapter 19 of Enforcement Guide (EG) to deal with how it will exercise its powers against proxy advisors who are alleged to have contravened the Regulations. The FCA’s approach under the Regulations will broadly mirror its approach to conducting investigations, sanctioning and the use of regulatory powers under FSMA.

The deadline for comments on CP19/21 is 26 July 2019.

]]>Joint statement on opportunistic strategies in the credit derivatives marketshttps://www.lexblog.com/2019/06/26/joint-statement-on-opportunistic-strategies-in-the-credit-derivatives-markets/
Wed, 26 Jun 2019 12:54:09 +0000https://www.lexblog.com/2019/06/26/joint-statement-on-opportunistic-strategies-in-the-credit-derivatives-markets/On 24 June 2019, the FCA and the US Commodity Futures Trading Commission (CFTC) issued a joint statement on opportunistic strategies in the credit derivative markets. The statement outlines the respective agencies concerns and the commencement of collaborative efforts to address these concerns.

The joint statement provides:

‘The continued pursuit of various opportunistic strategies in the credit derivatives markets, including but not limited to those that have been referred to as ‘manufactured credit events,’ may adversely affect the integrity, confidence and reputation of the credit derivatives markets, as well as markets more generally. These opportunistic strategies raise various issues under securities, derivatives, conduct and antifraud laws, as well as public policy concerns.’

]]>Prospectus Regulation Delegated Regulations published in OJhttps://www.lexblog.com/2019/06/24/prospectus-regulation-delegated-regulations-published-in-oj/
Mon, 24 Jun 2019 10:32:52 +0000https://www.lexblog.com/2019/06/24/prospectus-regulation-delegated-regulations-published-in-oj/On 21 June 2019, there was published in the Official Journal of the European Union (OJ):

Commission Delegated Regulation (EU) 2019/979 of 14 March 2019 supplementing the Prospectus Regulation with regard to regulatory technical standards on key financial information in the summary of a prospectus, the publication and classification of prospectuses, advertisements for securities, supplements to a prospectus, and the notification portal, and repealing Commission Delegated Regulation (EU) No 382/2014 and Commission Delegated Regulation (EU) 2016/301. The Commission Delegated Regulation applies from 21 July 2019; and

Commission Delegated Regulation (EU) 2019/980 of 14 March 2019 supplementing the Prospectus Regulation as regards the format, content, scrutiny and approval of the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market, and repealing Commission Regulation (EC) No 809/2004. The Commission Delegated Regulation applies from 21 July 2019.

]]>MiFID II / MiFIR Delegated Regulations published in OJhttps://www.lexblog.com/2019/06/24/mifid-ii-mifir-delegated-regulations-published-in-oj/
Mon, 24 Jun 2019 10:28:16 +0000https://www.lexblog.com/2019/06/24/mifid-ii-mifir-delegated-regulations-published-in-oj/On 21 June 2019, there was published in the Official Journal of the European Union (OJ), Commission Delegated Regulation (EU) 2019/1011 of 13 December 2018 amending Commission Delegated Regulation (EU) 2017/565 as regards certain registration conditions to promote the use of SME growth markets for the purposes of MiFID II. The Commission Delegated Regulation applies from 11 October 2019.

On 20 June 2019, there was published in the OJ, Commission Delegated Regulation (EU) 2019/1000 of 14 March 2019 amending Delegated Regulation (EU) 2017/1799 as regards the exemption of the People’s Bank of China from the pre- and post-trade transparency requirements in MiFIR. The Delegated Regulation comes into force on the twentieth day following its publication in the OJ.

]]>Reports of European Commission technical expert group on sustainable financehttps://www.lexblog.com/2019/06/20/reports-of-european-commission-technical-expert-group-on-sustainable-finance/
Thu, 20 Jun 2019 14:34:17 +0000https://www.lexblog.com/2019/06/20/reports-of-european-commission-technical-expert-group-on-sustainable-finance/On 18 June 2019, the European Commission published new guidelines on corporate climate-related information reporting, as part of its Sustainable Finance Action Plan. The guidelines are intended to provide companies with practical recommendations on how to better report the impact that their activities are having on the climate as well as the impact of climate change on their business.

The Commission’s expert group on sustainable finance has also published the following reports on:

a classification system – or taxonomy – for environmentally-sustainable economic activities. This aims to provide practical guidance for policy makers, industry and investors on how best to support and invest in economic activities that contribute to achieving a climate neutral economy. The group has screened activities across a wide range of sectors and identified low-carbon activities in order to compile a comprehensive classification system for sustainable activities. The report is published as the Commission’s proposal on taxonomy awaits agreement by the co-legislators;

]]>ESMA publishes translations for Guidelines on non-significant benchmarkshttps://www.lexblog.com/2019/06/20/esma-publishes-translations-for-guidelines-on-non-significant-benchmarks/
Thu, 20 Jun 2019 14:09:09 +0000https://www.lexblog.com/2019/06/20/esma-publishes-translations-for-guidelines-on-non-significant-benchmarks/On 19 June 2019, the European Securities and Markets Authority (ESMA) issued the official translations of its guidelines on non-significant benchmarks under the Benchmarks Regulation. Member State national competent authorities to whom the guidelines apply must notify ESMA whether they comply or intend to comply with the guidelines within two months of the publication of the translations.
]]>New note on IOSCO report on sustainable financehttps://www.lexblog.com/2019/06/14/new-note-on-iosco-report-on-sustainable-finance/
Fri, 14 Jun 2019 13:22:09 +0000https://www.lexblog.com/2019/06/14/new-note-on-iosco-report-on-sustainable-finance/We have published a new two-part briefing note summarizing the International Organization of Securities Commission’s (IOSCO) report of 5 June 2019 on sustainable finance in emerging markets and the role of securities regulators (our blog is here). The report takes a cross-border look at how emerging jurisdictions are implementing measures to promote the development of sustainable finance, and provides details on IOSCO’s recommendations to national regulators. This note will be of particular interest to asset managers and institutional investors looking at capitalising on the global growth of ESG investing.

Both briefing notes can be found on ESG insight, housed within our Asset Management Regulation hub. ESG Insight is our dedicated free online resource to help financial institutions and investors who are facing a growing requirement to assess, monitor and disclose the sustainability of their investments, and features

Analysis of key UK and EU regulatory developments

Regular high-level updates on activities in the ESG sector

A library of crucial UK, EU and international ESG papers

Insights into the EU Action Plan on sustainable finance

A bespoke ESG video series

Perspectives from the global stage

For more details on ESG insight, please click here, or for access, please click here.